Computer Associates swings to profit

As revenue rises, software firm also boosts buyback plan

By

MichaelPaige

LOS ANGELES (MarketWatch) -- Computer Associates International Inc. late Tuesday posted a quarterly profit, reversing a year-earlier loss, as revenue increased 8.9%. The company also said its board approved a $200 million increase to its share buyback plan.

After the close of trade, CA
CA, +0.37%
said it earned $41 million, or 7 cents a share, for its fiscal second quarter. In the same period a year ago, the Islandia, N.Y.-based company lost $98 million, or 17 cents a share.

The company's bottom-line results included restructuring charges of $45 million, a $14 million charge related to an acquisition as well as a $16 million tax benefit.

CA said its operating earnings, which exclude the items, rose to 24 cents a share from 21 cents a share a year ago to meet the average of analysts' estimates.

Revenue for the three-month period ended Sept. 30 increased to $942 million from $865 million.

Cash flow from operations increased to $299 million for the quarter from $152 million a year earlier.

Billings for the latest quarter increased 14% to $975 million, while bookings fell 11% to $665 million due to an expected decrease in early contract renewals, the company said.

Wall Street analysts, on average, had expected the management software company to post a profit before items of 24 cents a share on revenue of $945 million, according to a Thomson First Call survey.

"We entered the quarter with a strong pipeline, executed on our business plan, improved working capital management and held our costs in line," Chief Operating Officer Jeff Clarke said.

Chief Executive John Swainson said the company was pleased with its latest results.

Looking ahead, CA predicted net earnings for the current fiscal third quarter of 10 cents a share on revenue of $950 million to $980 million, up from 5 cents and $917 million a year earlier. The company pegged its quarterly operating earnings at 24 cents a share, up from 18 cents in the same period of last year.

For the year, the company forecast net earnings of 41 cents to 43 cents a share on revenue ranging from $3.8 billion to $3.85 billion. It put operating earnings at 94 cents to 96 cents a share for the year.

The current average of analysts estimates calls for CA to earn 25 cents a share before items on revenue of $980 million for the third quarter. For the year, the average of estimates puts its earnings at 96 cents a share on revenue for $3.85 billion.

In July, CA had predicted net earnings of 46 cents to 51 cents a share on revenue of $3.8 billion to $3.9 billion. The company's prior forecast called for operating earnings of between 93 cents and 98 cents a share for the year.

The company lost 1 cent a share on revenue of $3.56 billion in the prior year. Its operating earnings last year were 80 cents a share.

Clarke, the operating chief, said in an interview that the company would increase spending on marketing in the second half to ensure continued growth.

He added that the company is about halfway through completing a round of some 800 job cuts announced in July and remains on track to complete the restructuring by the end of the calendar year.

"With the first half of the fiscal year completed, we are raising the floor on operating earnings and refining the guidance ranges previously provided to account for foreign currency exchange and increased investments in the business, including marketing initiatives and acquisitions," Chief Financial Officer Bob Davis said.

The CFO also said CA continues to expect mid-to-high single digit billings growth for the year and 10% adjusted cash flow excluding items.

The increase to its share buyback program brings the company's total authorization to $600 million for the fiscal year.

CA, which has worked to put behind it a multibillion-dollar accounting scandal that cost former CEO Sanjay Kumar and other executives their jobs, recently filed audited financial statements with regulators that boosted past revenue for fiscal 2003 through 2005 but are expected to dampen revenue from 2006 through 2011.

The revised financial statements also reflected higher costs for stock options. See full story.

Shares recently stood at $28, up 1.7% from their regular close and recovering from an initial dip in evening trading following the results. The stock closed the normal trading day off 0.8% at $27.54 and has ranged from $26.04 to $31.71 over the past 52 weeks.

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